2014 Government Regulations & Business Summit
Join PBN and our sponsors for our Government Regulations & Business Summit on Th ...
Here’s some good news for homeowners worried that Congress will fail again to renew popular tax benefits for use in 2014 – especially those allowing for mortgage debt forgiveness, write-offs for energy-saving improvements and mortgage insurance premiums.
Though there has been no formal announcement, the Senate Finance Committee under new Chairman Ron Wyden, D-Ore., expects to take up a so-called “extenders” package within weeks, sometime this spring. “This is high on [Wyden’s] priority list,” according to a source with direct knowledge of the committee’s plans. That’s an important change from last December, when then-Chairman Max Baucus, D-Mont., who is now ambassador to China, let 50-plus corporate and individual tax benefits expire. The House also took no action to extend.
As a result, several key tax code housing provisions lapsed into a legislative coma. Without reauthorization retroactive to Jan. 1, they could disappear from the code and not be available for transactions this year. Both Baucus and House Ways and Means Committee Chairman Dave Camp, R-Mich., focused on wholesale rewrites of the tax code last year rather than spending time on extending special-interest tax provisions.
But now there are signs that at least some of the expired housing benefits could be back on Congress’ to-do list. What are these “extenders,” as they are called on Capitol Hill?
Tops on the list is the Mortgage Forgiveness Debt Relief Act, a law that has saved large numbers of homeowners from hefty tax bills – close to an estimated 100,000 taxpayers in 2011, the latest year for which IRS estimates are available. First enacted in 2007 with menacing clouds of the housing bust on the horizon, the law carved out a special exception to the general rule in the tax code: When you are relieved of a debt burden by a creditor, the amount forgiven is treated as income subject to taxation at ordinary rates.
For qualified homeowners whose mortgage debt was reduced or written off by lenders in connection with loan modifications and short sales, the law said, the forgiven amounts would not be taxable. However, the 2007 carve-out for mortgages was temporary. Congress was required to extend it periodically – which it failed to do last Dec. 31. At least one state has a partial remedy for congressional inaction, however: California owners who sell homes through short sales are not subject to taxation on the amounts forgiven, a legal interpretation confirmed by the IRS.